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By Isla Binnie and Supantha Mukherjee
MADRID/STOCKHOLM, March 3 (Reuters) - European telecoms
firms are cashing in on the money-making power of masts, as
tower companies line up to pay multi-billion dollar price tags
for antennas buzzing with ever more data ahead of the advent of
5G.
Faced with straitened revenue growth and stubbornly high
debt built up during the last network upgrade, telecoms
companies are relishing the quick cash injections they can get
from selling these portfolios, or future income from spin-offs.
Upgrading networks, including towers, for 5G - which
promises an age of self-driving cars and brain surgery performed
at a distance - will soak up some $890 billion between 2020 and
2025, the GSMA industry body says.
European operators are increasingly willing to exploit
assets to help finance those build-outs. While selling towers
outright brings piles of cash, many are also looking to create
separate tower units or launch joint ventures with independent
companies as a way to keep a chunk of potential future growth.
So far this year, Vodafone has lined up its towers
business for the European sector's biggest listing since 2014,
while Orange created a separate towers unit.
Independent tower companies have proved hungry to buy,
snapping up more than 14 billion euros ($16.9 billion) worth of
assets so far this year to access the steady, inflation-linked
returns antenna-topped towers generate.
But around 66% of sites in Europe are still wholly or
partially owned by phone companies, Barclays estimates, compared
with less than 10% in the United States.
"The market is unlocking," said Julian Plumstead, Chief
Executive for Europe at American Tower, which bought
more than 30,000 towers from Spain's Telefonica in
January.
Compared to the United States, Plumstead told Reuters, "We
are still in the early to middle ages of our industrial
development, but looking forward I think the trend will continue
and possibly accelerate."
GRADUALLY RELINQUISHING
In cases where operators and tower companies have signed
joint ventures, the tower companies say they usually have the
option to buy out the operators after a number of years.
This means some are gradually relinquishing these unlikely
trophies in stages. Telefonica netted more than $9 billion with
the sale to American Tower of sites it had already hived off
into a separate unit in 2016.
"We fully understand the interest of the operators in going
for this two-stage approach," Cellnex Deputy Chief Executive
Alex Mestre told Reuters. "There is revalorization of the asset
... and the operators can seize that."
Plumstead said American Tower had managed to beef up its
portfolio - from an admittedly low base - in Europe this year
despite restrictions on movement.
"Getting people into the field has not been as easy... but
we've built more towers this year than in Europe last year and
we'll plan to do the same again this year."
Towers are prized assets partly because contracts to use
them are like an "infinite marriage" in which operators pay
steady rates for decades, in the words of one industry expert.
Shares of both American Tower and Cellnex touched record
highs last year during the pandemic after more than doubling and
more than tripling respectively in value in the last half
decade.
TOWERING OVER EUROPE
Deal-making has been concentrated in Western Europe until
now, but regional leader Cellnex and American Tower, whose buy
from Telefonica increased its presence in Europe sevenfold, are
both now looking further east and in Scandinavia.
"We are looking at a wider geographic scope," Cellnex's
Mestre said. "We have started also in the Nordics, we have
started in Poland and in all those areas in our core geographies
where we believe there are still a lot of towers yet to be
outsourced."
Almost all European operators are now discussing what they
should do with their tower assets, industry executives say.
High multiples paid for recent deals have piqued their
interest. American Tower paid Telefonica around 30x its tower
unit's most recent core earnings for the assets, according to
analysts at Moody's.
Operators willing to part with their towers have commanded
average valuations 22.1 times higher than the assets' core
earnings since mid-2018, Moody's also said. Cellnex clinched the
lowest price among recent deals, paying 16x earnings for a
portfolio from Poland's Play last October.
"If you conclude that it's not really a competitive
advantage to own the towers, then you should dispose of them
because the multiple arbitrage is high," said Nikos
Stathopoulos, chairman of mobile operator United Group, which
owns 6,000 towers in Bulgaria, Slovenia and Croatia.
Sweden's Telia is also considering wringing money
out of its more than 9,000 towers by partnering with external
investors, a spokeswoman told Reuters, while Telenor is also
aiming to generate value from its tower portfolio, a
representative said.
($1 = 0.8314 euros)
(Reporting by Isla Binnie in Madrid and Supantha Mukherjee in
Stockholm; Editing by Jan Harvey)
